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March 30, 2001


The opinion of the court was delivered by: James T. Giles C.J.



Elliott Reihner Siedzikowski & Egan, P.C., ("ERSE" or "the firm") filed this action on August 9, 2000, against the Pennsylvania Employees Benefit Trust Fund ("the PEBTF" or "the Fund") and Thomas G. Paese ("Mr. Paese"), former Secretary of Administration of the Commonwealth of Pennsylvania and former Chairman and a Trustee of the PEBTF, in his individual capacity, alleging violations of the First and Fourteenth Amendments, protected through 42 U.S.C. § 1983, and, under state law, for breach of contract and tortious interference with contractual relations.

Count I of the complaint avers that the PEBTF and Mr. Paese improperly refused to pay ERSE amounts earned under a written Fee Agreement, in retaliation for ERSE's allegedly politically protected speech regarding defendants' efforts to sabotage the PEBTF's own attempts to recover from insurance companies that insured various Commonwealth unionized employees, seventy million ($70,000,000) to eighty million ($80,000,000) dollars of allegedly improperly diverted funds.

Count II, directed only against the PEBTF, alleges that the PEBTF has breached the Fee Agreement, by refusing to pay the fee owed to ERSE and by cheating ERSE out of its fee.

Count III, directed only against Mr. Paese, alleges that he intentionally interfered with and induced the PEBTF's breach of the Fee Agreement, without lawful justification or privilege.

Now before the court is the PEBTF's Motion to Dismiss Counts I and II of the Complaint, and Mr. Paese's Motion to Dismiss Counts I and III of the Complaint. For the reasons that follow, each motion is granted.


Consistent with the review standards applicable to a motion to dismiss, the alleged facts, viewed in the light most favorable to the plaintiff, follow.


The PEBTF is a jointly administered labor/management trust fund that was created in October 1988 for the purpose of providing a full range of healthcare benefits to approximately 85,000 unionized Commonwealth employees and their dependents. In addition, the Fund also acts as the third-party administrator for the delivery of healthcare benefits for 45,000 retirees, annuitants and their dependents. All together, the Fund provides healthcare coverage to approximately 300,000 people.

The Fund grew out of a collective bargaining relationship between the Commonwealth of Pennsylvania and several different unions representing state employees, including American Federation of State, County, and Municipal Employees ("AFSCME") Council 13, Pennsylvania Social Services Union ("PSSU"), United Food and Commercial Workers ("UFCW"), the Pennsylvania Nurses Association, and the Federation of State, Cultural & Educational Professionals.

The Fund is governed by an equal number of union and management trustees. Seven Union Trustees are selected by the unions which maintain collective bargaining relationships with the Commonwealth and whose members receive medical benefits provided by the Fund. The seven management or Commonwealth Trustees are appointed by, and serve at the pleasure of, the Governor of Pennsylvania.

The Chairmanship of the Fund rotates over time between the Executive Director of AFSCME, Council 13, the largest of the unions and the Secretary of Administration of the Commonwealth of Pennsylvania.

The Trust is funded primarily by contributions made by the Commonwealth of Pennsylvania in accordance with its collective bargaining agreements with the various unions.

At some point, the PEBTF came to suspect that the Blues were overcharging the Fund for the cost of these medical goods and services, causing a substantial waste, diversion, and loss of taxpayer funds entrusted to the Fund and its Trustees. (Compl. ¶ 18.) Such overcharges were also adversely affecting Fund beneficiaries who were required to pay portions of their medical costs in the form of co-payments and deductibles. (Compl. ¶ 19.)

The PEBTF's contracts with the Blues gave it the right to audit the insurers. The Trustees retained a firm, TH Services, to audit the Blues' claims records for overcharges and other suspected improper billings. (Compl. ¶ 21.) By examining the data that was supplied, and employing its analytical methods, TH Services extrapolated that the Blues had overcharged the PEBTF by at least $70 million over the term of the audit period of four years, from 1988 through 1992. (Compl. ¶ 22.)

ERSE claims that, while refusing to turn over information for the audit, the Blues also threatened to terminate health care coverage for the Fund's beneficiaries. Faced with this resistance, the Fund decided in September 1994 to retain counsel to sue the Blues. (Compl. ¶ 23.)

B. ERSE's Fee Agreement with the PEBTF

In December 1994, ERSE, pursuant to a fee contract, was retained as a special litigation counsel by the PEBTF to pursue claims against the Blues, who allegedly had over-billed the Fund over a course of years. (Compl. ¶ 10.) Prior to retaining the firm, however, the PEBTF and their outside counsel*fn1 attempted to have the Blues execute an agreement to ...

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